Budget hotel growth boosts business travel budgets

25 Aug 2014 by BusinessTraveller

David Robertson, Colpitts World Travel

The rise of the competitively priced hotel chain which has now established itself in towns and cities throughout the UK looks set to continue into the future. As existing and emerging brands expand their presence in the market it is likely to be welcome news for the business traveller aiming to strike a balance between value and comfort.

The active brands include the likes of Citizen M, which combines both style and economy. The group is currently building a nine storey, 370 room development over Tower Hill Underground Station in London. Malaysian-based Tune Hotels also continues to expand, opening new UK locations in both the capital and in Edinburgh over the past two years. Meanwhile Travelodge opened a new £11m, 157-room hotel in Manchester in March, bringing the company portfolio to 16 hotels in the Greater Manchester area and 513 in total across the UK.

Across the UK, budget hotel growth has been phenomenal in the last decade and a half. In 2000 they accounted for only three per cent of total hotel bookings. By 2010 around one in five bookings were being made through budget chains, a figure predicted to rise to over 25 per cent by 2016. As Business Traveller has previously reported, budget hotel companies like Premier Inn and Travelodge are now doing more business in the UK than the older established brands such as InterContinental and Holiday Inn.

The Big Four firm PWC has picked up on the growth of low cost hotels in many cities across the UK, especially London, in recent years. In one of its recent ‘Insight’ reports the firm highlighted ‘competitive rates for business and leisure travellers in a recessionary climate’ which had been responsible for recent growth.

The growth amongst business travellers over the last decade has been particularly significant for budget hotels. Within the Colpitts client base we have seen increased sales year on year over the last 12 months of more than 70 per cent.

While many SMEs, which are often more cost-conscious when it comes to travel spend, have been long-familiar to budget accommodation, we are now seeing more corporate organisations, government and other major public sector bodies now using them in a wider capacity. I have little doubt that the 2008 financial crisis will have played a role here as many banks and financial services companies are now cutting down on external costs like travel expenses.

Earlier this year RBS CEO Ross McEwan announced continued cost cutting at the bank, following an 18 per cent reduction in its expenses since 2007. Other corporates including Barclays, Diageo and Royal Mail have also recently announced significant cost cutting drives with travel budgets likely to figure as part of this.

Another factor accounting for budget hotel growth is that the priority of the modern business traveller is changing. Today’s traveller typically requires a comfortable bed, decent shower and internet connection during their stay, all of which tends to be on offer at budget hotels.

It is also fair to say that lower cost hotel chains have got their act together in making themselves far more appealing to the business traveller. Some of the established and emerging brands mentioned above are now providing a comfortable yet cost-effective compromise between the rates of four and five star hotels and the standards on offer from the lowest end of the sector.

It is significant to see the Marriott Group, considered part of the establishment amongst the higher end accommodation providers, now looking to exploit the changing nature of this market by launching its new Moxy brand. Meanwhile, at the budget end we are seeing established groups looking to close the gap between themselves and the five-star market through the creation of new brands such as Hub which has been launched by Premier Inn.

Given the improved offering of accommodation, the growth of luxury budget brands as well as budget luxury brands and the certainty that companies and consumers will continue to demand value, the development of budget hotels across the UK will continue. The fragmentation of this sector means we will likely see a clearer divide between the low cost, no frills operators and those looking to offer a higher spec while striking the balance between comfort and affordability.

While the rise in standards and the growing level of competition may be a huge challenge for the hotel industry, it is all very welcome to companies looking to get the best value out of their business travel budget.